Task Analysis of financial instruments (7 points)

Tashkent Financial Institute Faculty of Finance student of the group MMT-90i Latifjonov Sherzod`s 1- assignment work from the “Finance” object
Variant № 9
Task 1. Analysis of financial instruments (7 points)

As of January 2018 you had 7 million soums that you planned to invest in one of the following financial instruments:

1. bank deposit “A” with an annual interest rate of 22%, simple interest, interest accrual once a year;
2. bank deposit “B” with an annual interest rate of 22%, compound interest, interest accrual once a year;
3. bank deposit “C” with an annual interest rate of 21%, compound interest, interest accrual every month;
4. bank deposit “D” with an annual interest rate of 20%, compound interest, accrual of interest every day;
5. US dollars;
6. euro;
7. British pounds sterling;
8. Japanese yen;
9. Chinese yuan;
10. Swiss francs;
11. Russian rubles;
12. shares of enterprise “X”.
You have chosen bank deposit "C" as a financial instrument.
Find the future value of your possible investments for each of the financial instruments as of January 2023 and evaluate the correctness of your choice. The investment period is 5 years
Answers

To determine the future value of each investment and the percentage profit they offer, we can use the formula for compound interest:

A = P*(1+r/n)^(n*t)
Where:
A = the final amount
P = the principal amount (initial investment)
r = the annual interest rate (as a decimal)
n = the number of times the interest is compounded per year
t = the number of years
For financial instrument 1 (bank deposit "A" with simple interest), the formula for simple interest is:
A = P*(1+r*t)
Where:
A = the final amount
P = the principal amount (initial investment)
r = the annual interest rate (as a decimal)
t = the number of years
In both cases, we want to calculate the future value of the investment after 5 years (as of January 2023).
Using the given information, we can calculate the values for each investment as follows:

1. 
   Financial instrument 1: A = 7,000*(1+0.22*5) A = 12,650
   

Profit = (A - P)/P * 100 Profit = (12,650 - 7,000)/7,000 * 100 Profit = 80.71%

2. 
   Financial instrument 2: A = 7,000*(1+0.22/1)^(1*5) A = 12,948.57
   

Profit = (A - P)/P * 100 Profit = (12,948.57 - 7,000)/7,000 * 100 Profit = 85.69%

3. 
   Financial instrument 3: A = 7,000*(1+0.21/1)^(1*5) A = 12,640.49
   

Profit = (A - P)/P * 100 Profit = (12,640.49 - 7,000)/7,000 * 100 Profit = 80.58%

4. 
   Financial instrument 4: A = 7,000*(1+0.20/1)^(1*5) A = 12,160.00
   

Profit = (A - P)/P * 100 Profit = (12,160.00 - 7,000)/7,000 * 100 Profit = 74.57%

To calculate the future value of each investment, we can use the formula:

FV = PV x (1 + r/n)^(n x t)

Where:

FV = Future Value
PV = Present Value (in this case, 7 million soums)
r = Annual interest rate (as given for each investment)
n = Number of times interest is compounded per year (as given for each investment)
t = Time period (in years)

1. 
   Bank Deposit "A":
   

Annual interest rate: 22%
Interest accrual: once a year
Future value after 5 years:
FV = 7,000,000 x (1 + 0.22/1)^(1 x 5) = 16,387,605.80 soums
(16,387,605.80 - 7,000,000)/7,000,000 x 100% = 134.11%

2. 
   Bank Deposit "B":
   

Annual interest rate: 22%
Interest accrual: once a year
Future value after 5 years:
FV = 7,000,000 x (1 + 0.22/1)^(1 x 5) = 16,387,605.80 soums
(16,387,605.80 - 7,000,000)/7,000,000 x 100% = 134.11%

3. 
   Bank Deposit "C":
   

Annual interest rate: 21%
Interest accrual: every month
Number of times interest is compounded per year: 12
Future value after 5 years:
FV = 7,000,000 x (1 + 0.21/12)^(12 x 5) = 16,336,375.38 soums
(16,336,375.38 - 7,000,000)/7,000,000 x 100% = 133.48%

4. 
   Bank Deposit "D":
   

Annual interest rate: 20%
Interest accrual: every day
Number of times interest is compounded per year: 365
Future value after 5 years:
FV = 7,000,000 x (1 + 0.20/365)^(365 x 5) = 16,313,757.23 soums
(16,313,757.23 - 7,000,000)/7,000,000 x 100% = 133.05%

Based on these calculations, Bank Deposits "A" and "B" have the highest future value at 16,387,605.80 soums. However, if we consider the compounding frequency, Bank Deposit "C" has a slightly lower future value at 16,336,375.38 soums, but it accrues interest every month, which can be beneficial for managing cash flows.

Therefore, all of the investments have a potential profit above 130%, with Bank Deposits "A" and "B" having the highest potential profit at 134.11%.

5. 
   R(USD) = ( E(R₂)-E(R₁))/E(R₁) = (11246.81 - 8136.67)/8136.67 = 0.38223 = 38.223 %
   
6. 
   R(euro) = ( E(R₂)-E(R₁))/E(R₁) = (11982.35 - 9775.4)/9775.4 = 0.2257 = 22.57 %
   
7. 
   R(British pounds sterling) = ( E(R₂)-E(R₁))/E(R₁) = (13531.04 - 10996.71)/ 10996.71= 0.2304 = 23.04%
   
8. 
   R(Japanese yen) = ( E(R₂)-E(R₁))/E(R₁) = (85.14 - 72.23 )/ 72.23 = 0.1787 = 17.87 %
   
9. 
   R(Chinese yuan) = ( E(R₂)-E(R₁))/E(R₁) = (1621.86- 1250.54)/ 1250.54 = 0.2969 = 29.69 %
   
10. 
    R(Swiss francs) = ( E(R₂)-E(R₁))/E(R₁) = (12182.42- 8321.41)/ 8321.41 = 0.4639 = 46.39 %
    
11. 
    R(Russian rubles) = ( E(R₂)-E(R₁))/E(R₁) = (154.07- 142.37)/ 142.37 = 0.0821 = 8.21 %
    
12. 
    To solve this question, we can use the formula for the future value of a single lump-sum investment:
    

FV = PV * (1 + r/100)^n
where FV is the future value, PV is the present value, r is the annual rate of return, and n is the number of years.
For the shares of enterprise "X", the annual rate of return is calculated as:
((2000 + 200) - 1000) / 1000 * 100 = 120%

№	Financial instruments	Rent
1	Bank Deposit "A": Interest accrual: once a year	134.11%
2	Bank Deposit "B": Interest accrual: once a year	134.11%
3	Bank Deposit "C": Interest accrual: every month	133.48%
4	Bank Deposit "D" Interest accrual: every day	133.05%
5	shares of enterprise “X”	120%
6	Bank deposit “B” compound interest	85.69%
7	Bank Deposit "A": simple interest	80.71%
8	Bank Deposit "C": compound interest	80.58%
9	Bank Deposit "D" compound interest	74.57%
10	Swiss francs	46.39 %
11	USD	38.223 %
12	Chinese yuan	29.69 %
13	British pounds sterling	23.04%
14	EURO	22.57 %
15	Russian rubles	8.21 %